Yields sink to record low

Wednesday 17 August 2016

Rental yields have fallen to a record low nationwide and there’s unlikely to be a turnaround anytime soon, according to a new analysis.

By Miriam Bell

Economic forecaster Infometrics’s latest rental market update shows that rental inflation nationwide edged up from 4.0% to 4.6% per annum during the June quarter.

However, the update goes on to note that this rate of growth is much less than national house price inflation per annum (at 14%).

For this reason, average rental yields have fallen to a new record low of 3.68%.

The national increase in rental inflation was driven by the Waikato region, which saw rental growth of 7.4% per annum.

Yet that regional growth was not enough to prevent rental yields in Hamilton falling to an all-time low.

This is because Hamilton’s hot housing market is currently seeing price growth of 32% per annum – which leaves the city’s 7.0% rental growth in the shade.

In Auckland, slow rental growth at a time of ever-increasing prices means that rental yields in the former North Shore, Auckland, and Manukau City areas have also dipped to new record lows.

Infometrics chief forecaster Gareth Kiernan said there is no evidence that trend is likely to change anytime soon.

“Rents are simply not moving in in relation to house price inflation. They just don’t correlate, they are out of whack.”

Landlords who tried to charge in correlation with house price increases and up the rent significantly would probably not do very well, he said.

“That’s because house prices are now so dislocated from incomes… That will keep rental yields down for the time being.”

There has been some speculation that the Reserve Bank’s new investor-targeted LVRs might lead to rent increases.

The argument for this is that preventing investors from purchasing property could constrain rental supply and the resulting increase in demand would result in rent rises.

But Kiernan said they had seen no evidence of that in Auckland to date.

“The Auckland-specific LVR changes late last year do not appear to have further constrained the supply of rental accommodation or pushed up rents in the region. 

“So we would not expect any particular impact from the new round of LVRs.”

The impending LVR restrictions are likely to have a significant effect on house sales activity though, he said.

“While any moderation in house price inflation will reduce the downward pressure on rental yields, given the rapid house price growth in some parts of the country, this shift is unlikely to be sufficiently large to drive a near-term recovery in yields.

“A flattening out of house prices over time would be the most likely factor to lead to rental yields going back up again.”

Comments from our readers

No comments yet

Sign In / Register to add your comment

Property News

Confidence in rental returns at new low

Belief that rental property will provide the best investment returns has fallen to a 15 plus year low, the latest ASB Investor Confidence Survey reveals.

House Prices

A decade of property price growth

Recent years have seen some spectacular house price growth around New Zealand but just how much have asking prices gone up in different markets over the last 10 years?


Australian giant in Augusta takeover bid

Commercial property investment company Augusta Capital today announced a surprise takeover bid from Australian listed Centuria Capital.


Putting the RBNZ's new capital rules into perspective

There's been a lot written about the Reserve Bank's new capital rules for banks and some of it seems to miss the mark. Here's Tarawera Publishing managing director, Philip Macalister's, take after hearing from the governor yesterday.

Site by PHP Developer